Archive for the ‘Economics’ Category

Just in case anyone hasn’t already seen it from my spamming, have just set up www.stopthelevy.com, which is to be an online petition to stop Labor’s newest tax to make up for its chronic overspending.

I’m sure I don’t need to convince any of you about how disastrous this would be, or go into the severely deleterious effects it will have on our economy, so, I’ll just ask you to check out the site, Follow it on Twitter, and “like” it on Facebook. And spread it to all your friends.

Here at Americans for Tax Reform we have worked tirelessly to educate the public about the dangers of excessive taxation: job losses, businesses closing, economic stagnation – effectivly misery all round.

Now we have one more thing to blame high taxes on: breaking up the Beatles.

First told to give away vast amounts to avoid tax bills — which they did in a series of madcap ventures, offering money to any old person who dropped by with a demo tape — then told they had to make £120,000 in order to keep just £10,000. Soon their finances were in chaos and their energy sapped, as nutters beseiged Apple HQ pressing tapes on them. They also ran a clothes shop as a tax dodge.

Bramwell blames Harold Wilson, the Prime Minister, directly. “There were enough new regulations and red tape to tie up free enterprise for years … One minute Swinging London was like a giant theme park, the envy of the world, then they — Wilson and his gang — closed it down. It was as if they went out and stamped on it.”

So there you have it. Exhibit #98612323 on the negative effects of big government. In memory of the great band and their struggle against big government, what could be more appropriate than the lyrics to their 1966 song, The Taxman:

1,2,3,4,1,2

Let me tell you how it will be,
There’s one for you, nineteen for me,
‘Cos I’m the Taxman,
Yeah, I’m the Taxman.
Should five per cent appear too small,
Be thankful I don’t take it all.
‘Cos I’m the Taxman,
Yeah yeah, I’m the Taxman.

On late Friday evening, President Obama made the first major trade decision of his Administration. He decided to impose a 35% tax hike on imported tyres from China. In doing so, he not only hurt American families, already struggling with the high cost of transportation, our troubled auto industry, which relies on imports to stay competitive, but also has sparked a major international trade war. Already China announced dumping and subsidy probes of chicken and auto products from the U.S. Most expect this dispute to escalate even further with the potential of a fully fledged job-destroying trade war.

Make no mistake – there is near unanimous consensus that tarriffs like this are bad policy. A near-unanimous 93% of economists – from all accross the political spectrum – believe “tarrifs reduce economic welfare”. It is interesting to note that the Chinese government responded by stating “China has always steadfastly opposed trade protectionism,” and that China was “willing to continue acting in concert with other nations to promote a global economic recovery as soon as possible.” When China starts attacking you for deviating from free market policies, you really need to start thinking…

Penn & Teller, the Las Vegas Headliner magicians/comedians with their own Showtime TV program (entitled Bullshit!), recently dedicated an episode to taxation. And it’s great! Not only is it ideologically very libertarian, but it was also, well, very funny! I know putting the words ‘funny’ and ‘tax’ in the same sentence is normally unheard of, but they managed to pull it off quite well.

Obviously it’s focused on the U.S, and designed for the layperson rather than political activist, but I think most of it applies equally to the Australian situation, and is well worth a watch.

You can download a copy at [removed] (where you have to sign up for some spam or some such first but it really is quite worth it – I just used a fake email).

So, enjoy! 🙂

(Warning: Contains extensive profanity and brief full frontal nudity. Which depending on your workplace might raise a few eyebrows.)

Update: I have removed the link due to copyright restrictions (I erroneously assumed it was a legal copy). Sorry. You can (legally) view a short trailer here.

To me, this little tale, more so than any other piece of writing, illustrates the beauty of the free market. More so than any other piece of writing, it summerise in a short, pity manner, just why markets work, and the State fails.

I’m sure you have all read it, but here’s a reminder anyway:

I, Pencil

By Leonard E. Read

I am a lead pencil—the ordinary wooden pencil familiar to all boys and girls and adults who can read and write.

Writing is both my vocation and my avocation; that’s all I do.

You may wonder why I should write a genealogy. Well, to begin with, my story is interesting. And, next, I am a mystery —more so than a tree or a sunset or even a flash of lightning. But, sadly, I am taken for granted by those who use me, as if I were a mere incident and without background. This supercilious attitude relegates me to the level of the commonplace. This is a species of the grievous error in which mankind cannot too long persist without peril. For, the wise G. K. Chesterton observed, “We are perishing for want of wonder, not for want of wonders.”

I, Pencil, simple though I appear to be, merit your wonder and awe, a claim I shall attempt to prove. In fact, if you can understand me—no, that’s too much to ask of anyone—if you can become aware of the miraculousness which I symbolize, you can help save the freedom mankind is so unhappily losing. I have a profound lesson to teach. And I can teach this lesson better than can an automobile or an airplane or a mechanical dishwasher because—well, because I am seemingly so simple.

Simple? Yet, not a single person on the face of this earth knows how to make me. This sounds fantastic, doesn’t it? Especially when it is realized that there are about one and one-half billion of my kind produced in the U.S.A. each year.

Pick me up and look me over. What do you see? Not much meets the eye—there’s some wood, lacquer, the printed labeling, graphite lead, a bit of metal, and an eraser.

The picture on the left demonstrates the importance of private property rights more than words ever could.

Taken in Zimbabwe, and put up by the Center for Global Development, this is an ariel view where the “dry communal lands on the left are sharply delineated from the green private farms dotted with lakes and ponds on the right–so sharply that soil quality and rainfall are unlikely to explain the difference.”

The center then provides a second image, taken after President Mugabe’s attack on private property, and the seizing of farms by the State. The result is sadly predictable. The dams and irrigation systems on the private farms collapsed, making them look more like communal lands, to the detriment of all.

Similar examples abound all over the world. Perhaps the most famous of these is North Korea at night:

South Korea has at its core a system of government that protects private property rights, scoring a respectable 24th rank in the International Property Rights Index. In North Korea, property rights are non existent.

The result? Growth & prosperity in the south, and an economy stuck in the middle ages in the North.

Not only is private property the most important guarantee of freedom, it is also the only guarantee of prosperity, and the only way for developing countries to improve their economic status.

As world-renowned economist Hernando de Soto once stated:

“What we see in the West, which is the reason why it works, is that capitalism is essentially all about property rights, rights that can be transacted in a market to further the distribution of work, the division of labor. And what occurs in at least 80% to 85% of a population of the third world and former communist nations is that that part of the population has assets. They do have assets, as a matter of fact, trillions of dollars, but they’re not paper rights in a property rights system, so their value cannot travel and actually insert itself into a diversified market.”

I leave you with one final graphic:

The picture on the left proves it once and for all.

The Property Rights Alliance, an affiliate of Americans for Tax Reform, annually releases the International Property Rights Index (IPRI), an annual report sponsored by 54 organizations that tracks property rights around the world. It has found that that countries that protect their physical and intellectual property enjoy a GDP per capita up to nine times greater than those without legal protection.

Make no mistake, this decision will cost jobs in NSW. This decision will force the NSW government to purchase goods from more expensive, and inefficient, domestic suppliers. As a result, government expenditure will significantly increase, and the cost will be born solely by the NSW taxpayer. NSW is already the highest taxing state in Australia, a key reason people are leaving NSW for other states in droves. Individuals will struggle to pay higher taxes, decreasing consumption. Businesses will be forced to increase prices, meaning even less consumption, leading to job losses and business forced to close.

There can be no doubt that free trade leads to greater prosperity – a fact even recognised by the Rudd government, who oppose this move. This decision is one based on rank xenophobia, and some horrid desire that people in other countries should not receive income – apparently NSW Labor want people in developing countries to live in poverty. It will be bad for other countries, it will be bad for NSW, it will be bad for all.

Free trade leads to prosperity for all. For NSW Labor to return to the dark days of protectionism is an utter disgrace.

It’s a fundamental principle of economics known to every freshman econ major: if you raise the price of something, demand for it will go down. Keep raising the price, and you’ll end up with less money than you started with. A concept so simple, even a child could understand it (see graph).

Yet such simple common sense continues to elude lawmakers, who seem to think they can just keep raising taxes and tap into an unlimited pool of cash.

Statistics released in Kentucky last week once again demonstrate the foolishness of such an approach. Kentucky lawmakers passed a whopping tax hike on alcohol and … tax receipts fell 55%. In fact, in the last year, consumption and wholesales tax revenue dropped by a whopping $1.75 million.

Of course, Kentucky legislators should have been aware of this – just look at the effects of revenue raising alcohol taxes in the past: the last time the federal government raised the distilled spirits excise tax, it took 11 years to bring in more revenue. And look at what happened with tobacco tax hikes. New Jersey raised the cigarette tax 17.5 cents in 2007. They collected $52 million less than they had projected and $22 million below what they collected before the tax hike. Maryland raised the cigarette tax $1, in 2007 sales dropped by 25% and there was a 254% increase in cigarettes illegally crossing state lines. When Arkansas passed a 56-cent tax hike on cigarettes in February, revenue projections were lowered by $14 million just one month after passage.

Raising taxes at any time is a bad idea. Raising them in the middle of a financial downturn however is economic suicide.

There are few things that economists can agree on – they disagree on pretty much everything! But on this one thing universal consensus exists – YOU DO NOT RAISE TAXES IN THE MIDDLE OF A RECESSION!

The reasons for this are rather obvious. Tax hikes hurt consumers (who have less disposable income), and businesses (as consumption drops). This leads to many businesses reducing their workforce, or even closing their doors. The economy contracts, and living standards fall. At a time when our unemployment levels are rising, with future increases to come as Gillard’s Job Killing Act 2009 comes into effect, now – more than ever – is certainly NOT the time to further burden business and drive up unemployment.

Thus is saddens me greatly that the Federal Parliamentary Wing of the Liberal Party is proposing to hike cigarette taxes instead of focusing on cutting Rudd’s wasteful spending. Let us make no mistake about this. The budget deficit is PURELY a result of Labor overspending – NOT external factors. As such, the response should be to cut spending – NOT introduce job killing tax hikes.

Increasing cigarette taxes will hurt the poorest Australians the most. It is an unfair, regressive tax. What’s more, countless retail outlets across the country will be hit hard by this. There is no doubt if enacted jobs will be lost – and this isn’t even getting into the descent into nanny state paternalism.

Furthermore, evidence in the US shows that tax hikes on cigarettes are a really dumb way to raise revenue. When New Jersey raised the cigarette tax 17.5 cents in 2007 they expected to bring in an additional $30 million. Not only did New Jersey not meet that target, but it ended up with a net loss of $24 million in total tax revenue from tobacco. Maryland doubled the cigarette tax to $2 last year and cigarette sales dropped 25%, falling considerably short of projections leaving a gaping budget black hole. Much of this loss can be attributed to black market and online tobacco sales – not smoking cessation, and this is certainly an industry starting to thrive in Australia. In any event, if people do stop smoking eventually, what happens to the revenue stream then? You’ll need to raise other taxes to prop up this piece of spending.

The Liberal Party’s budget reply contained a number of good ideas. Chief among them was the creation of an impartial Parliamentary Budget Office, to provide independent advice to Parliament on fiscal matters – this is a great idea, and one I really hope is implemented. Unfortunately however, such good initiatives were overshadowed by this horrendous call for tax hikes.

With the economic vandalism Kevin Rudd is inflicting on the Australian economy, the Liberals pretty much have the free market vote locked up (unlike in 2007), so electorally such things probably won’t matter much. But that doesn’t negate the fact that it’s bad policy.

Raising taxes at any time is a bad idea. Raising taxes in an economic downturn is just policy stupidity. All believers in sound fiscal policy should oppose this tax.